Manager Search, Selection, and Monitoring Flashcards
Manager Search, Selection, and Monitoring
- Identify the elements and categories of manager search and selection
- Adopt a manager search methodology using standard criteria for manager/index selection, including qualitative and quantitative criteria
- Adopt hedge fund manager search methodology using standard criteria for manager/index selection , including qualitative and quantitative criteria
- Establish expectations and criteria for manager search
- Evaluate short term versus long term results
- Evaluate passive versus active strategies
- Evaluate past performance for manager search and selection
- Use active manager databases and other research
- Explain components of the individual manager interview
- Evaluate different structures
- Execute active share research
- Describe manager styles
- Identify issues with manager composites
- Identify the benefits and caveats of manager structuring including a multi manager approach
- Implement a core satellite approach
- Conduct manager search and perform due diligence
- Monitor qualitative and quantitative manager attributes
Note: this list came from an old IWI (IMCA) document. We do not think you’ll be tested on
the specifics but a review of the elements to be reviewed in MS&S is important.
8 P’s of Manager Search & Selection
- Philosophy
- People
- Plans
- Product
- Process
- Progress
- Price
8 PERFORMANCE (make sure this one goes last!)
Upside & Downside Capture
An upside capture ratio over 100 indicates a fund has generally outperformed the benchmark during periods of positive returns for the benchmark. Meanwhile, a downside capture ratio of less than 100 indicates that a fund has lost less than its benchmark in periods when the benchmark has been in the red. If a fund generates positive returns, however, while the benchmark declines, the fund’s downside capture ratio will be negative (meaning it has moved in the opposite direction of the benchmark).
Performance Attribution Analysis
Other terms for active asset allocation and active asset selection
Determine the excess return (outperformance) that comes from:
a. active asset “allocation” = market timing = tactical allocation
b. active asset “selection” = security selection = stock picking
Active Share
- active share represents the percentage of company stock held in a mutual fund or portfolio that differs from the composition of an applicable index or benchmark
- the greater the difference, the higher the active share
- active share, as a metric, is used to identify how much a portfolio deviates from an index and may be used to spot “closet indexers”, managers whose portfolio tends to reflect a high level of exposure similar to an index.
Active Share = ½ Σ |(Wt of Stock i in Fund) - (Wt of Stock i in Index)|
Active Share conclusions
- preliminary conclusions indicate the higher the active share the higher the performance (i.e., active management is adding value)
- this research is often debated as results are not conclusive and “active management” may not be causative
Conduct manager search and perform due diligence
- the process of conducting an investigation into a potential investment in order to confirm facts and discern risks
- also described as the “level of care taken by a reasonable person before making an investment “ due diligence is also performed on an ongoing basis